In today’s briefing:
- Asia Ex-Japan’s Rising Stars
- US: Recession Imminent, as M2 Needs to Contract Further to Squeeze Out Inflation
- The Week That Was in ASEAN@Smartkarma – Kungri’s Reincarnation, BlueBird Is Back, and Bank Rakyat.
- Licence to print money
Asia Ex-Japan’s Rising Stars
- We screen for companies that are at record positioning among active Asia Ex-Japan managers, whilst capturing strong investment growth over the last 6-months.
- 9 companies stand out, led by Yum China Holdings, Inc (YUMC US) and Glodon Company Limited A (002410 CH)
- These 9 stocks have accelerated to a record combined weight of 3.04%. The rate of increase has been remarkable, with average weights doubling since the end of March 2022.
US: Recession Imminent, as M2 Needs to Contract Further to Squeeze Out Inflation
- M2 contracted 1.3%YoY in Dec’22, its first YoY contraction in 80+ years. Since core PCE inflation was still 4.4%YoY that month, more monetary contraction is needed.
- The 10yr-2yr yield spread is -0.76pp (10th Feb’23), while ISM manufacturing new orders have slipped to 42.5, both unequivocally signaling that recession will likely begin next quarter (Q2 2023).
- US real GDP decelerated for 4 consecutive quarters (to +1%YoY in 4Q2022), but the labour market appears tight merely because the participation rate is 4pp lower than 2008.
The Week That Was in ASEAN@Smartkarma – Kungri’s Reincarnation, BlueBird Is Back, and Bank Rakyat.
- The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across South East Asia.
- The past week saw insights on Bank Of Ayudhya, Blue Bird, Bank Rakyat Indonesia, Delta Electronics Thai, Total Access Communication, and True Corp Pcl.
- We also saw insights on Boustead Holdings, Sabana Industrial REIT, Pertamina Geothermal, and Lippo Karawaci, with additional commentary on Bank Rakyat, Sido Muncul, Sariguna Primatirta, and a lot more below.
Licence to print money
- The European Banks story is starting to play out as, while Macro Investors continue to speculate on GDP and inflation trades, news flow from corporates means bottom up investors are starting to realise that the end of Zero Interest Rates (ZIRP) means huge improvements in Net Interest Margins (NIMs) for banks, which in turn means huge upgrades in revenues, even without any new loans.
- Announcements of increased dividends and buybacks (eg Unicredito) have come against a background where, despite some nice moves already, those same banks are still priced for a recession that many are starting to think may not be as bad as first thought, meaning the macro specialists are also starting to rethink.
- The combination of low valuation, operational leverage, the end of regulatory restrictions on dividends and buybacks and a general improvement in pricing power and competitive advantage is sector wide – and in fact not limited to banks -but for those banks with a deep and rich deposit base it is that NIM story that is the most powerful; having a large deposit base in this new New Normal is, quite literally a License to Print Money.
💡 Before it’s here, it’s on Smartkarma
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